Mike Dennison: We saw a lot of improvement in 2023, although Q4 we didn’t see any, of course, as we called out in the prepared remarks just because of the UAW. So we’re back on that path now in Q1 and we’ll keep pushing all those improvements throughout the year. But we came a long way, until let’s say, Labor Day and then just some softness in the UAW. So we know what to do volume does matter to your point. So, once we get pass or not over pass UAW moving forward, I think we’ll see that come back in.
Bret Jordan: Great. Thank you.
Operator: Our next question will come from Anna Glaessgen with Riley.
Anna Glaessgen: Hey. Good afternoon, guys, and thanks for taking my question. I guess, I’m trying to understand a little bit better, what’s changed since you last spoke in November, the last report. It seems like the UAW strike impact at least at that point was fairly well understood. You had started incorporating higher interest rates in terms of dealer reluctant to take inventory. Would it be fair then to say that this powersports shifts and inventory recalibration is kind of the biggest piece that’s moved since then? Any way to kind of frame out those buckets a little bit more would be great?
Mike Dennison: Well, I think, in general, this is really just a function of OEM forecasting and OEM softness. Noble Duchess and powersports either, that’s probably the main the major contributor in December in Q1. We do see some softening in the automotive space, not necessarily the high end vehicles and other vehicles. We see some softening in AAG, just relative to floorplan financing as we’ve called out in the past. Is it more significant from? Yes. So now, it’s really a function of floorplan financing tied to do you have the right product on the right what. We had the Shelby Trough at $120,000-plus, you’ll buy. Is it to $75,000 and round check you made up your line. So, it’s just a function of macro interest rates and mix.
And I think that stuff works itself out. Its metal against our own product development or product roadmap issues. It’s just around where you have to have something new and fresh where consumers want to spend their money. And I think you’re seeing and how our company like ours that you can — if you can create something, that’s enticing to a consumer, they’re going to pull out a lot of you spend money. And if you don’t then that’s a problem. So these product launches in 2024 are going to be incredibly important to our growth and success this year.
Dennis Schemm: And I think the other thing to add to that Mike would just be bike. Certainly it was a little softer than what we had expected when we were out with you in November. So, clearly there’s been some deterioration in demand. And so, we built that into the forecast. This is in the first quarter and we should start seeing growth there in the second quarter as more and more of these OEMs go to that model year 2025. It’s a good point you’ve heard me say the faster they get out of this probably the better off. We’re all going to be so steps toward paying just take it and get it done. And I’m not so worried about a quarter whether it’s Q4 or Q1, I want to get back to a normalized business pattern or product. Well, this picture shows how differentiated we are, but I can’t sit there until they get through this stuff. Sounds like just take the pain and go with it was dealing.
Anna Glaessgen: Thanks. I just want to clarify, well, does this benefit you think back to growth in 2Q or was it the second half?
Mike Dennison: Sequential, sequential growth. We should allocate Q1 to Q2 to be sequential growth and then the back half would be growth from with our current expectations.
Anna Glaessgen: Got it. And yes, on that going back to the prepared comments, I think you said SSG should be, but I like the lowest level in 1Q since the destocking has started. So that would be — it’s up to $72 million in 3Q. Is that the right way to think about that?
Dennis Schemm: That is absolutely correct. We will be lower than $72 million.
Larry Solow : Okay. Thanks. That’s it for me.
Dennis Schemm : Yes. Thank you.
Operator: Our final question will come from Jim Duffy, Stifel.
Jim Duffy: Thank you. Hi, guys.
Mike Dennison : Hi, Jim.
Jim Duffy: Good to hear your voice again. Good to get an update on the business. I appreciate it’s a difficult environment for sure, and I appreciate visibility is a challenge. With that in mind, can you help us a little more detail on your process and the assumptions that are shaping the guide? I wanted to dig in some on the upfit business, which has been a big driver in recent years. Dealerships have been destocking. I appreciate floor plan financing has been a challenge. Where are they in the destocking process? Like how much aged inventory is still around? Is there a framework you guys use to think about this, be it number of dealerships, vehicles per dealership, that type of thing?
Mike Dennison : Yes. I mean, framing up some of those components, again, just starting with SSG, we are off to a slower start in Q1. We are experiencing those trough levels now because of demand, because of where the OEs are at right now. That’s clearly a pretty significant factor in the guide, right? So just a softer SSG business overall year-on-year, so flat to down year-on-year, but especially in the first half. From a PVG perspective, again, last year, fantastic growth when you think about it with 21% year-over-year growth with a UAW headwind and a slow ramp-up. And as we start to move into Q1, that power sports division is off to a slower start. And so that’s clearly built into our guide, and that’s shaping a tougher mountain for them this year because of a weaker power sports group.
And that’s — we’re seeing that with the dealers and distributors just having a tougher time with the floor plan financing there. And then in AAG, again, fantastic growth over the last couple of years with the upfit business. I mean, it was 40% for two years back-to-back. And so that growth is fantastic in the upfit business. But this year, definitely slower just because we’re not getting the right chassis. We’re not getting enough chassis. And then you have dealer floor plan financing just really inhibiting dealers from taking more risk and putting the product on their lot. And so that’s having a pretty significant influence on us, and quite frankly from a margin standpoint as well.
Jim Duffy: On the upfit business, it does. Just more on the upfit business, are you close to a point where sell-in can more closely match sell-through? Or is there even opportunity for restocking in that up-fit business, given all the destocking that’s happened on dealer lots as the year unfolds?
Mike Dennison : You know, Jim, it’s mike let me jump in. So what we’re seeing from the dealers is a very conservative approach to model your changes. So let’s say you’re a Ram dealer. You know, Ram has had the same truck for five years. They haven’t updated that truck in the last five years. And so while there’s inventory available for them to put on their lot right now, they’re holding out for model year 2025, which is actually going to get launched in early 2024. So you’ll find dealers who because of full-time financing, that don’t want to go with the current model year, because they’re just going to wait for the next model year. In this case, it’s going to come out fairly early in the year. So you’ve got to challenge the dealer who’s really trying to understand, what do I want to have on my lot and when?
How many vehicles do I want to have on my lot? It’s a dynamic that’s pretty interesting. It just means, as I said before, it’s going to come down to, do you have the new product, the new models with the new custom packages? When you have that, the selling and stuff will work out just fine. I don’t think it’s going to be a problem at all. Even if we’re still in a bit of an elevated interest rate world, I think if you can show the customer something new and fresh, they’re going to come buy it. And we feel the same way about side-by-side upfitting. But it really comes down to when do those new model year vehicles launch and how fast can we get our custom up-fit model year trucks out the dealer lots to sell.
Jim Duffy: Thanks for that, Mike. Last question for me. I’ll take the rest offline. But I’m still trying to get my arms around the influence from the UAW strike which platforms have been most influenced by the UAW strike. And I’m curious like how this rolls forward. Is there catch-up opportunity from the strike? When would that start to manifest in the numbers. And then specific to that auto OEM business is there now a difference in the timing for new platforms like the Ranger Raptor or even the ramp of production for vehicles like the Bronco Raptor and so forth which we had been thinking about is nice incremental contributors.
Mike Dennison: Yes it’s interesting. What we’re not being told that you that is specifically changed a lot timeframe for a vehicle from our OEMs looks to us like some of these things will UAW potentially induce. So we saw some things push into Q1 of this year that were supposed to be launched in Q4 of last year. I’m just curious there’s an implication there. Again nobody says that out right Jim. So it’s hard for us to just make that statement over infer that from what we’ve seen on now. I think what we saw was some cash some companies OEMs were faster to get back on production in November and others really kind of let the year play out. I think there are enough inventory out there and the dealers said to not be in any real hurry to get back to full production.
And we saw them exit the quarter not being back at full production which was interesting to us. And now it’s we expect that number to be forecasted but in fact what materialized. So I think we also on a long-term basis I think there is some catch-up that can happen on Bank rate is so influenced by the macro. So influenced by the model year changes in buyer interest rates. It’s hard to just take a number out of Q4 and we apply it to a core any quarter this year. So I think there is positivity by I would be hard-pressed to say that there was a one for one, move from Q4 into Q2 or Q3. We might, but we’ll have gotten on that just yet.
Jim Duffy: I understand. Thank you, Mike.
Mike Dennison: Thanks Jim.
Operator: We’ll conclude today’s question-and-answer session. I will now turn the call over to Mike Dennison for any additional or closing remarks.
Mike Dennison: Thanks, James. And again appreciate everyone’s interest in Fox Factory and a good evening. We’ll talk to you soon.
Operator: This does conclude the Fox Factory Holding Corporation’s Fourth Quarter and Full Year 2023 earnings call. You may now disconnect your line and have a great day.
